What is a public utility? Definition and meaning

The definition and meaning of a public utility is a company that operates as a public-service corporation, and provides essential services to the public such as electricity, telephone service, natural gas, water or postal services. The public utility is typically regulated by the national, state or local government. The term ‘public utility’ may also refer to the service or product itself – water, natural gas, sewage, etc. – that these organizations supply to members of the public.

For example, if several companies operated in the supply of tap water, each one with its own infrastructure, the additional costs of having more than one water pipeline would not benefit the consumer, and would raise prices considerably.

A public utility is a company that supplies ‘utilities’ – such as natural gas, electricity and telephone services – to consumers. It may be a private sector or state-owned business. In most cases, it is the only supplier.

Monitoring a public utility

These natural monopolies are either state-owned or private-sector commercial enterprises that are closely monitored by a public utilities commission or similar government agency.

The government agency limits how much the public utility can charge consumers, and may insist that even those who cannot afford to pay the market price are still supplied – this is called a universal service obligation.

Left to itself in a natural monopoly environment, a private-sector public utility would make decisions that are most profitable for the business. Such decisions would lead to high prices and the minimum of service compared to competitive conditions.

These decisions might not be in the best interests of society. State agencies that monitor public utilities aim to make sure these services are economically accessible to most or all of the population.

“Government or private sector owned provider of energy, telecommunications, transportation, waste disposal, water, or other such basic good or service.”

By deciding to apply the same rules that govern public utilities, such as the telephone service, to broadband, the FCC voted to ensure the fair and equal treatment of all traffic on the Internet. The new rules meant that broadband providers could no longer block or slow down traffic on wired or wireless networks. It also meant that Internet service providers could no longer charge content companies, such as Netflix, fees in order to access Internet ‘fast lanes’ in order to reach their customers more rapidly when networks were congested.

When a public utility is state-owned, the government usually creates autonomous bodies to protect them from day-to-day political interference. In the majority of cases, state-owned public utilities tend to be less efficient than their counterparts in the private sector.

Public utility and new technologies

With breakthroughs in technology, the nature of regulation changes – what used to be a natural monopoly suddenly becomes a competitive marketplace.

New technologies have allowed parts of electricity generation and distribution, as well as natural gas, to be serviced by a number of competing players rather than just one.

In the UK today, electricity is distributed by ‘The Big 6’ – British Gas (it also sells electricity), EDF Energy, E. ON UK, Npower, Scottish Power and SSE.

“For example, in twenty-first-century United States and elsewhere the electricity generation market is relatively competitive and consumers are able to purchase electricity from competing vendors (generators).”

“However, the transportation of electricity still remains a natural monopoly and continues to be regulated. Further, often times the deregulation of some or all functions of public utilities might occur over time due to political-economic compulsions.”

Broadband Internet access – a public utility?

If the traditional telephone service is a public utility, so shouldn’t broadband Internet access also be? That is a question that arose about one decade ago.

In all the advanced economies, and a growing number of emerging economies, the Internet has replaced traditional telephone services as the most essential communications utility. Some people say it has become as important today as electricity was a century ago.

“Truly high-speed wired Internet access is as basic to innovation, economic growth, social communication, and the country’s competitiveness as electricity was a century ago, but a limited number of Americans have access to it, many can’t afford it, and the country has handed control of it over to Comcast and a few other companies.”

According to Prof. Crawford, the US government has allowed a small group of massive, highly-profitable companies to totally dominate the Internet broadband market. Consequently, Americans have fewer choices for broadband services and have to pay higher prices than consumers in other developed nations.